Effect of Japan stimulus to be mixed: economists

By Amy Su / Staff reporter

Tue, Jan 22, 2013 - Page 13

Japan’s drive to revive growth may have mixed effects on Taiwan’s economy by benefiting certain industries, but raising the risk of speculative capital inflows, economists and government officials said yesterday as the Bank of Japan started a two-day meeting.

Under a stimulus plan announced by Japanese Prime Minister Shinzo Abe, the Bank of Japan is expected to double its headline inflation target to 2 percent and increase its asset purchase program, which could lead to a further weakening of the yen, with additional quantitative easing measures ahead.

Academia Sinica economic research fellow Ray Chou (周雨田) said he did not expect Japan’s moves to stimulate its economy would significantly damage Taiwan’s economy.

“Taiwan’s import demand from Japan is stronger than the nation’s exports to Japan, which indicates that the depreciation of the Japanese yen could benefit Taiwan’s economy through lower import costs,” Chou said by telephone.

However, certain exporters in Taiwan, which sell the same kinds of products as Japanese exporters, may face increased pressure under the depreciating trend of the yen, he added.

Lin Lee-jen (林麗貞), director-general of the Ministry of Economic Affairs’ statistics department, yesterday said a weaker yen would still affect local companies’ business operations as well as their future strategies, adding that Taiwan’s export orders are likely to decrease as Japanese firms could feasibly start manufacturing their products in Japan at a lower cost.

“A weaker yen would have negative impacts on Taiwanese exporters and we have seen from last month’s data that Taiwanese manufacturers received 7.5 percent fewer orders compared with November,” Lin said.”

For importers of Japanese end products and intermediate goods, such as the precision machinery and opto-electronics industry sectors, the yen’s depreciation is likely to be beneficial as these firms purchase many core components from Japanese manufacturers, said Gordon Sun (孫明德), director of the macroeconomic forecasting center at the Taiwan Institute of Economic Research (台灣經濟研究院).

While a declining yen will put pressure on some of the nation’s companies, it will cause even greater damage to South Korea’s economy because of the strong similarity between their industrial structures, Sun said.

This may raise uncertainties over the value of the New Taiwan dollar, he said.

“Once the South Korean won follows the yen’s depreciating pace, the NT dollar may also see itself facing a heavy pressure to decline,” Sun said.

Private think tank Yuanta-Polaris Research Institute (元大寶華綜合經濟研究院) said global financial markets have been factoring in the expectation that Japan’s central bank will raise its target for headline inflation today.

However, the major factor affecting whether these measures would be effective in boosting Japan’s economy is whether the Bank of Japan announces an asset purchase program with no ceiling, the institute said in a research note.